Cricut, Inc. Q1 FY2025 earnings call

Tariffs

• Acknowledged tariffs introduce uncertainty but have diversified supply chain outside China. Total sales down 3% YOY, but paid subscribers up over 6% YOY, International sales up 8% YOY, and operating income up 16% YOY.

Capital Allocation

• Board approved special dividend $0.75/share, recurring semi-annual dividend $0.10/share payable in July, and replenished stock repurchase program up to $50 million.

Platform and Products

• Platform revenue up 2% on paid subscribers; Products revenue down 7% due to accessories/materials decline. Focus on new machine launches, marketing efforts, user engagement initiatives, subscription growth, and accessories/materials turnaround.

Total sales in Q1 decreased 3% year-on-year. Platform revenue increased 2% on paid subscriber growth. Products revenue declined 7%, with connected machines revenue growth of 4% offset by 15% decline in accessories and materials. International revenue for the quarter was $35.1 million, an increase of 8% compared to Q1 2024, and included about 2% of foreign exchange headwind. As a percentage of total revenue, international was 22% in Q1 2025, compared with 19% of total revenue in Q1 2024.

Outlook

• Expect total company sales to decline YOY in H1 2025 vs H1 2024, but at a slower rate.
• Platform sales expected to increase YOY on paid subscriber growth, but lower new user growth may pressure subscriber growth.
• Removed guidance on operating margins due to tariff uncertainty. Expect to be profitable each quarter and generate positive cash flow in 2025.

Risks

• Tariffs introduce uncertainty and potential impact on consumer discretionary spending.
• Engagement trends remain a challenge with older user cohorts and newer users creating fewer projects.
• Dependence on successful execution of marketing and product strategies to reverse sales declines in accessories and materials.

Q: What are some of the levers to mitigate any tariff related headwinds?

A: Maya, thanks for the question. So on tariffs, let me break it down to three parts. First, our supply chain configuration, as you called out, because we actually do think it is a help to us at this point relative to some of the competition. Then I'll talk about potential margin impact to the business and then -- and impacts to customer pricing. So over the last several years, we've been moving our finished goods spend outside of China. And so we think that positions us well in the current environment. So for example, all of our hardware products, our cutting machines, our heat presses and other extensions and those types of accessories are all manufactured in Malaysia. And many of our consumables are produced in South Korea, Thailand and some still come out of China. But overall, the vast majority of finished goods spend comes from countries other than China. And so especially for some of our partners that have more China exposure, we think that represents an opportunity for us. From a margin impact, it's a dynamic situation and still a little too early to call, and that's one of the reasons why we have removed any color or outlook on operating margins for the year. But that said, I want to emphasize that we expect to be profitable each quarter and to generate significant cash flow. When it comes to consumer pricing, we're still evaluating exactly how that plays out, but we do expect the average consumer price to go up, and we'll achieve that through a combination of less deep promotions and some targeted price increases. But we'll be very deliberate on how we exercise pricing strategy. So again, recapping, supply chain, we think is a help margin too soon to tell, and so we're removing guidance, but expect to be profitable each quarter and produce significant cash flow. And then we do expect some impact on consumers. On the second part of your question on are we seeing any pull forward of orders. Now in Q1, we didn't see any, but recall Liberation Day came after the end of the quarter. And since the quarter closed, we've had multiple conversations with some of our U.S. channel partners that have slowed or discontinued receipts from China. And so where we have an opportunity to help stock shelves and support revenues of our partners and we have an opportunity to gain share in a profitable way, we have agreed to incremental inventory shipments. We're also seeing an incremental consideration for in-store placement and marketing from our retail partners. That largely relates to our consumables business and accessories and materials. On machines where we have a more constrained supply chain with long lead times, we'll continue to support normal run rates to keep channels in balance.

Q: Can you help us understand why and when we should start to see these engagement efforts bear fruit?

A: Thanks, Maya, for the question. So first of all, I want to acknowledge, right? We've been talking about this for several quarters now and engagement continues to be a challenge. So I won't go into too much detail on the reasons why it continues to be a challenge, but let me just kind of quickly recap. The two main reasons are the large cohorts that we acquired in 2020 and 2021, which as their engagement curve graduates over time, that puts a lot of pressure, especially while our acquisition is improving, we are still not acquiring enough to offset that. The second is as we position the platform as a category for mainstream users as we get to a broader audience in many cases an advantage, but those new users are cutting less. So let me focus on what are we doing to fix this. So number one is we are really building the platform for onboarders and improving the onboarding experience. So as and when they come onto the platform, they fall in love with the platform, they're able to use it very easily and the learning curve is very low so that they come back more often from the get go, right? To me that is probably the single most important thing that we should be focusing on. The second as we commented on in our remarks, right, we've implemented our marketing platform and we're seeing really good results from it, which is how do we bring users not only do we have to improve the making experience, the designing experience, how do we give people more reasons to come back? And we are doing that through personalized notifications and sending them information or inspiration that encourages them to come back and make a project. And we've seen some really good results for that. So we're going to scale that. We have so far implemented that in U.S. and Canada and we're going to scale that internationally as well as amplify those marketing efforts. So that's the second thing we are doing. And the third, which is probably the most important one, we've embarked on a pretty major platform rearchitect from a user experience standpoint. So our goal is to create some transformational experiences in design space. And the way we are doing that is through these very specific use cases. So in addition to making changes to the platform, our goal is that when a user comes in, how do we uncover their intent? They're here to make a T-shirt. They're here to make a vinyl decal or a card or another project. How do we make it easy for them to make that in three or four easy steps? So I think we will continue, we'll actually be delivering those use cases throughout the year. We think that it will not only improve the experience for onboarders, but it also will give us a reason to bring back many of the past users that are not coming onto the platform as often. So we are pretty I know it's been -- we've been talking about this for a while, but we have a tremendous amount of conviction and confidence that we are working on the right things. And as some of these things converge, we expect to see those engagement numbers go up.